Commercial Real Estate Lending Falls to Lowest Level Since 2013, Report Finds
Commercial Real Estate Lending Falls 33% in 2023, Lowest Level Since 2013
New lending for commercial real estate in the UK experienced a significant decline of 33% in 2023, reaching its lowest level since 2013, according to the latest bi-annual report from Bayes Business School. The report, researched and written by Dr. Nicole Lux, Senior Research Fellow at Bayes Business School, also highlighted that a substantial portion of the £170 billion of outstanding loans will need to be refinanced within the next 12 months, potentially causing ongoing stress in the market.
The report revealed that new lending in 2023 amounted to £32 billion, the lowest level since 2013, while total outstanding debt stood at £170 billion, the lowest since 2017. Dr. Lux attributed the decrease in outstanding debt to lenders not replacing repaid debt with new loans at the same rate, likely due to low transaction volume in real estate equity markets and uncertainties in valuations and debt transactions.
Key findings from the report included a decline in lending appetite across all lender groups, with new lending decreasing between 14% for UK banks and 50% for other non-bank lenders. Development lending totaled £5.8 billion, with over half going to residential development financing, although the overall development debt pipeline declined, accounting for only 16% of all new lending.
Dr. Lux emphasized the structural changes taking place in the real estate investment and lending markets, noting a trend towards borrowers sourcing debt from either UK banks or debt funds. International banks were found to be lending less in the UK market, with their share dropping to a historic low of 25% in 2023.
Industry experts commented on the report, with Peter Cosmetatos, CEO of CREFC Europe, highlighting the challenges faced by international banks due to regulatory and commercial issues. Aparna Sehgal, a partner at Dechert, noted the constrained transactional levels in the market and the increasing presence of alternative lenders.
Looking ahead, Chris Gow, from CBRE, expressed optimism for a mid-year recovery in the lending market as lenders complete the identification of problematic loans and competition intensifies for investment loans and developments in certain sectors. Ben Thomason, from Colliers, anticipated a return to market activity as interest rates and inflation decrease, leading to increased confidence from investors.
Despite the challenges faced in 2023, the real estate market is poised for potential recovery in the coming months as lenders adapt to changing market conditions and new opportunities emerge.
